Which way will the markets blow in 2015?

What will 2015 bring for good or ill? It is a new year, and in this weeks discussion we sit down and try to predict which direction 2015 will bring for Capital Markets.

The P4Capital executive team investigates.

Amanda: Good morning listeners! We are now well on our way into 2015, and with oil prices, the Canadian Dollar dropping, and interest rates on the rise – it seems like it’s going to be a doozy of a year. What will 2015 bring? The P4Capital executive team sits down and discusses their predictions in this weeks Round Table Discussion.

Jim: Today’s Pod-cast, which is the first of 2015, we want to concentrate on three:

  1. The TSX had a 7.4% growth in 2014.
  2. The US Fed has announced interest rate rises are on the horizon
  3. Is the decline in the overall capital markets profits at the Canadian banks obtained from 2014.

Jeremy: Well Jim, I think their profits might take another hit in 2015 given the price of oil being where it is these days, and Canadian economic dependency on oil. There’s not going to be a lot of new IPOs coming out this year with oil at $50 a barrel, or whatever the number is.

Archana: I’m actually on the same page as Jeremy on this one. Oil definitely is the central issue when it comes to all the three different things that Jim actually just mentioned as being our Pod-cast topic. The prices of oil barrels sort of taking a nose dive is definitely the central issue, which ties in with all of these subjects.

Jim: As the unfortunate veteran member of the round table, I remember a day some 40 years ago when the price per barrel of oil precipitated an unbelievable rise in the rate of inflation. And, I kind of look at those two numbers as juxtaposed right now. The US economy is booming right now and therefore they’re going to try to slow it down by having interest rates rise, at the same time the price for the barrel of oil is plummeting. Those two over the last 50 years don’t, mix. Either both go up or both go down – that seems to be what the history says so I’m very very interested in what the next quarter will entail.

Shaheerah: The drop in oil prices has actually been a good thing for the US economy, because the US is a net oil importer. Falling oil prices have helped the manufacturing sector to recover faster, and has reduced costs for the transportation sector and that has also meant that consumers are now encouraged to spend more. And so for the full year, the US economy is forecasted to grow 3%, and that is a little bit higher than what was previously estimated. The goal for 2016 is going to be estimated at 2.9%

Jim: Interesting enough, on top of those growth figures is, we look at the TSX overall number and it’s importance not only into corporate investing but also into the retailer, which as we’re part of this great baby boom exodus period of time right now, with the Boomers looking hard at their portfolio as they’re going to try to have those portfolios sustain them for 30+ years. Is the fact that, are they resource rich which is a typically Canadian mix and, with resources plummeting, what do they do now? The Canadian Dollar of course, has been a casualty of the rise of US economy, as of Jan 5 it was at 84 and fractions. So we overall take a look at this mix right now and say, I think we’re in for some turbulent waters.

Jeremy: Well hopefully, the average Canadian investor is a little bit more invested in global resources. More globally focused, I find is probably the right approach to take for 2015.  But then you get into some problems like we’re seeing in Russia, where the Russian equivalent to the Bank of Canada raised the overnight lending rate from 10% to 17% in one day. Which, I think is causing a cataclysmic negative result in the Russian economy, so that’s something to watch for as well. They’re a big oil-producing country as well.

Amanda: Based on what’s happening in Russia, could we draw comparisons to Canada?

Jeremy: No, not to that affect. I mean, I can’t see the Bank of Canada almost doubling the interest rates overnight.  They’re going to go up eventually, but it’s going to be a longer, drawn out process where they’re raising it by 25 basis points every couple of months.

Jim: One looks at, even say a point rise year over year, it’s something that’s been at least a decade since we’ve seen that, and one could argue even longer. What does that really mean then, in terms of capital market performance where they are looking at the derivatives of all these sort of global events that are going on, and now adding interest rate unpredictability on top of that and how’s it going to effect consumerism and I say to myself, hmm – are the systems of today, the technology of today, is it built to handle this as earlier stated, turbulent waters that we’re in?

Archana: Couple of interesting observations that Jeremy and Jim made. Jeremy, as he spoke about Canadian investors and how the need of the hour would be for them to diversify their portfolio to include more, global companies and actually, responding to Jim’s comment on whether the Canadian banks are adept in terms of their technology strategy, yes – to be global player again you need to ramp up on your technology strategies, to invest in the latest and the greatest and what have you, so for sure – I mean Canada to be recognized as a Global Player has to invest in upgrading and updating their systems.

Shaheerah: Actually, one of the sectors that did the best was the Health Care which went up 25%, and it was  information technology sector that went up 19%, especially for companies like Electronic Arts and Alibaba.

Jim: So again, as Shaheerah pointed out, the sectors in the Health Care and in the technology sectors took a rise and that would mean a big percentage piece of the overall TSX growth. But resources still have a key part, may I use that expression, within the overall TSX package. As I said, my personal opinion is that we’re in for a doozy of an overall change in the way that business technology has to be applied.  We have in our sister company, P4Digital an unprecedented growth from the banks for the need to attack the mobile client if you will, and we all know wealth managers who have been hammering at that point to get that money. In your global changes that are going on in the Capital Markets, the need for speed has probably never been greater. As Jeremy pointed out, the Russian government put six full basis points onto its lending rate. How does that effect your overall corporate portfolio mix? If you’re laggard in your technology and you’re laggard in being last to the party on that, the cream will have already have been swept off the table. Very very interesting times indeed.

Amanda: That was the P4Capital team discussing their predictions for 2015, and what you can do to prepare for it. Want to know more? Check out our all new website at http://www.planet4it.com Thanks and see you next time.


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